EU, Black Sea wheat faces competition for strong demand

Demand for European and Black Sea wheat could be fragile in the new 2021-22 marketing year, despite projections for record global wheat imports, owing to strong competition from rival origins and other feed grains, as well as risks of lower consumption because of the Covid-19 pandemic.

Global wheat imports could reach a record high in the 2021-22 marketing season ending 30 June 2022 at 199.46mn t, 47pc of which is expected to be covered by supplies from the EU, Russia and Ukraine, according to the latest estimates from the US Department of Agriculture (USDA).

EU and Black Sea region countries are projected to harvest bumper wheat crops this year following favourable weather conditions, which should ensure large export supplies. But both origins will have to compete strongly for market shares in key importing countries, with each other as well as with other wheat suppliers.

European and Black Sea exporters will mainly compete for shipments to north Africa, Turkey, Iran and Pakistan. Romanian-origin wheat already has a price advantage in Egyptian GASC's tenders for 2021-22 crop wheat, while Ukrainian and Russian wheat are losing out because of high freight rates and a tax on wheat exports in Russia.

Tunisia is expected to favour its traditional European wheat suppliers this marketing year, but in Algeria — where 2021-22 wheat imports are projected to increase by about 1.15mn t on the year to 7.65mn t — French-origin wheat could come under pressure from Russian exports.

Meanwhile, Morocco — another large wheat importer in north Africa — could reduce its imports by about 1.1mn t this season following higher domestic output. This reduction would be equal to Ukraine's total wheat exports to Morocco in the 2020-21 marketing season.

"We do not see any active interest for milling wheat from Morocco's importers from the start of the season, as the country can significantly increase domestic wheat production in 2021-22," the head of trading company MillCorp's Black Sea desk, Walenty Sielwiesiuk, told Argus.

In contrast, Turkey is projected to increase its 2021-22 wheat imports by 1.25mn t on the year to 10.25mn t, according to the USDA, with Russian and Ukrainian wheat expected to compete strongly for Turkish market share.

"Turkey has increased the share of agricultural purchases via state-run agency TMO's tenders in recent seasons, and we expect that TMO tenders will continue to play a key role for Turkey's wheat imports this season," agri-business firm Agrozan Commodities' country manager for Russia, Sabina Sodikova, told Argus.

Pakistan — which increased its wheat imports significantly in 2020-21 — is expected to continue buying Ukrainian and Russian wheat this marketing season. Market participants estimate Pakistan's 2021-22 wheat imports at 4mn t, in line with the previous marketing season, despite the USDA estimating them at 1mn t.

Competition with corn and Covid-19 pressure

In addition to competition from other export destinations, EU and Black Sea wheat could come under pressure from other feed grains, especially amid prospects for lower crop wheat quality this year.

Market participants expect higher supplies of feed wheat in the 2021-22 marketing year, after strong rainfall in Europe last month, as well as Ukraine and Russia. And demand for feed wheat will depend strongly on corn supply later this marketing year, with US and Ukrainian corn production potentially rising to record highs owing to an increase in planted areas.

Wheat is currently in strong demand from European feed producers, as wheat prices are more attractive compared with corn. But if corn prices fall sharply because of record production or a slowdown in Chinese demand, feed producers could switch to corn purchases, which could weigh on demand for feed wheat.

Global demand for EU and Black Sea wheat could also be affected by the continued Covid-19 pandemic, as new variants of the virus spread across the globe. This could have a negative impact on wheat consumption in the hospitality sector.

"We actually cannot predict how this [the continued Covid-19 pandemic] will impact wheat consumption in some major importers of product, such as Egypt or Turkey, where the tourism sector accounts for a large proportion of national economies," Sodikova said.

By Alexey Yeromin